Taxing Situation

9 02 2012

For as long as people have been buying things online, the debate has waged on over whether shoppers should be paying sales taxes on their purchases. Never mind that this debate actually pre-dates e-commerce for many years, though, because the argument has been similarly used against catalog and other direct mail merchants. It’s just that e-commerce made shopping out of state so much easier.

But now there is increasing momentum to finally crack this egg.

Twenty years ago the Supreme Court ruled that merchants need not collect sales tax from out of state customers…as long as said company did not have a “physical presence” in that state. “Physical presence” was rather gray, though, and was generally interpreted to mean a retail storefront. But states have started interpreting this to also include warehouses, distribution centers, office and any other kind of footprint properties.

On top of this, a growing number of states either are or are leaning toward requiring citizens to submit sales taxes to the state on any purchases made online that evaded the tax man.

Good luck collecting on these, though, as it would require the states to perform individual audits on households (and companies) to be able to determine who did what.

So what are the states to do? Band together to require all online companies to collect sales taxes on all purchases, and then remit those collections to the many taxing entities across the country.

Can you say nightmare?

For this reason alone, I stand opposed to mandated sales tax collections among e-commerce vendors. While BAM stores can cry foul until the auditors come home, such a mandate would place an undue burden on a segment of the economy that is actually showing healthy growth. Having to deal with the nuances of a fragmented tax code (e.g., Amarillo has 8.25% sales tax, while rural Randall County only recently voted to inch up to 7.25%…and that’s just one example) would be a nefarious penalty, especially among the smaller firms.

Sure, the big guns of e-commerce can have their sophisticated back-end programming handle all of this, but the little mom-and-pop dotcom selling cowboy hats out of their barn in West Texas may as well just throw in their Resistol.

Cue the sad country music.

Now I realize that the estimated sales tax drain attributed to e-commerce is estimated at $23 billion. Yep, that’s a lot of dough. And that’s just this year. But I would come closer to advocating a national sales tax on e-commerce than the enforcement of 50 states’ (and their variant) tax laws. While I can think of 50 governors who would not exactly be in favor such a tax, it is a more feasible solution. Let the federal government decide how to deal with those tax revenues (somehow I bet they would never leave Washington…but I digress).

I am a bloody capitalist, you see, and I abhor any efforts to stand in the way of pure, unbridled pursuit of profit. The sales tax advantage that e-commerce sellers have is not a subsidy. Rather, the sales tax burden that BAM companies face is a penalty for being there. And e-commerce companies are not there by definition (unless shoppers are buying in-state). Furthermore, BAM retailers have every opportunity to shutter their shops and meet Amazon online. Sales taxes are not intended to be a consumer penalty. They are a shared payment for services received from the state and local governments. If neither a company nor a shopper are in that state, then of what benefit are these entities?

Which explains why I am on a first name basis with Amazon. The Supreme Court of Me says to go where the bargains are.

Dr “Just My 8.25%” Gerlich

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